TCS for Foreign Remittance

May 15, 2023

Introduction

TCS stands for Tax Collected at Source, which is collected by the seller from the buyer. A person who sells items is liable to collect the tax from the buyer at a specific rate and deposit it to the government.

Foreign Remittance means sending money from one country to another country.

Liberalized Remittance Scheme (LRS) allows residents to remit funds abroad for various specified purposes without any restrictions.

You may need to transfer funds abroad because

  • You or your relatives or children may be studying abroad
  • You or a member of your family travel abroad for getting health treatment
  • Investments in shares or stocks of foreign companies
  • Providing loan(s) or sending gift(s) to relatives abroad

TCS applicability on Foreign Remittance

TCS is applicable in the following situations

  1. If any dealer receives an amount more than ₹7,00,000 in a financial year from a buyer who is remitting the amount from outside of India, then the dealer is required to collect TCS on the amount that is in excess of the ₹7,00,000 threshold.
  2. A seller should collect TCS on the entire amount received from the buyer without any limit only in case of an overseas tour package program

Updates in the TCS on Foreign Remittance

Before the Budget 2023, TCS was at 5% for remittances exceeding ₹7,00,000. However, the tax rate was hiked to 20% and also the limit of ₹7,00,000 was removed. This means now any remittance is subject to a 20% TCS irrespective of the amount of remittance. The only exception to this are remittances made for the purposes of education and medical treatment, which still have a 5% TCS above the limit of ₹7,00,000.

This new 20% rate is applicable from the 1st of July, 2023.

Tax benefits from new TCS

TCS can be claimed as an income tax refund or tax liability can be adjusted with tax deducted.

For example, if you want to remit ₹2,00,000, for the purpose other than medical or educational purposes then the TCS would be ₹40,000 (₹2 lakhs @ of 20%). Now, if your tax liability is ₹4,00,000, then you can deduct up to ₹40,000. So, the net tax liability is ₹3,60,000.



Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.



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